EDITORS: Please do not use
"Pacific Gas and Electric" or "PG&E" when
referring to PG&E Corporation or its National Energy Group.
The PG&E National Energy Group is not the same company as Pacific
Gas and Electric Company, the utility, and is not regulated by the
California Public Utilities Commission. Customers of Pacific Gas
and Electric Company do not have to buy products or services from
the National Energy Group in order to continue to receive quality
regulated services from Pacific Gas and Electric Company.

San Francisco ?Pacific
Gas and Electric Company today announced it has filed in federal
district court in San Francisco, asking the court to declare that
the federally-approved wholesale power costs the utility has incurred
to serve its customers are recoverable in retail rates.

Pacific Gas and Electric
Company continues to work with the California Public Utilities Commission
(CPUC), the Federal Energy Regulatory Commission (FERC), and other
policy makers to develop solutions to the crisis in wholesale electricity
prices. While a number of important steps forward have been made
in the last few weeks, given the gravity of the current financial
situation, this federal court action is needed to protect the company's
legal rights.

"The CPUC, federal regulators
and other public officials have all acknowledged that the current
wholesale power market is broken and not capable of producing competitive
wholesale energy prices, said Roger Peters, senior vice president
and general counsel of Pacific Gas and Electric Company. "However,
there has not yet been any concrete action by regulators to provide
for recovery of the costs we have incurred to purchase the power
our customers must have, either through refunds from power generators
who charged unfair prices, or through retail rates. These costs
are continuing to grow. This legal action is intended to confirm
our legal rights before the courts, protecting our financial viability
so that we can continue to provide the utility services on which
our customers rely."

The action states that the
wholesale power costs which the utility has incurred are included
in filed rates which FERC has authorized and approved, and that
under the United States Constitution and numerous federal and state
court decisions, such costs cannot be disallowed by state regulators.
As recently as this past summer in a report to Governor Gray Davis,
the CPUC and the Electricity Oversight Board agreed that prudent
wholesale power costs approved by FERC and included in federal filed
rates must be passed through by the CPUC in retail rates.

Moreover, the filing notes
that a significant amount of the more than $3 billion in Pacific
Gas and Electric Company's under collected power costs is for electricity
which state law mandates the California Independent System Operator
purchase and pass on to the utility in order to maintain electric
system reliability, literally "to keep the lights on."

"We were told to sell our
power plants, ordered to buy all our power to serve our customers
from the Power Exchange, ordered to accept all costs from the Independent
System Operator, and ordered to allow any customer to switch back
and forth between utilities and other energy service providers.
We do not make any 'mark-up' or profit on the cost of wholesale
power. In fact, we have taken every step the state would allow to
try to keep power costs down," said Peters. "It may seem attractive,
to some, to say that these costs now should not be included in customer
rates, but it is a direct violation of law."

Although it has not obtained
regulatory action confirming its right to recover its power costs,
Pacific Gas and Electric Company is working collaboratively with
regulators, policy makers and its customers to find solutions to
address the entire electricity price crisis in California. The company
has offered the following solutions to address the critical energy
crisis facing the state: Increase supply, moderate demand, repair
the broken wholesale market, and give our customers stable, reasonable
rates:

The company is aggressively
asking the Federal Energy Regulatory Commission to provide regulatory
relief from the unjust and unreasonable power prices charged
by the independent power generators, including price caps for
future sales, as well as refunds of any unreasonable prices.

The company has advocated
that the California Independent System Operator (CAISO) adopt
price caps and market restructuring mechanisms to try to repair
- at least on a temporary basis - the broken wholesale power
markets in California.

The company used the
limited authority granted by the California Public Utilities
Commission to "hedge" against higher prices, and has moved aggressively
to lock in the lowest prices available for future electricity
needs through the use of bilateral contracts with power generators.

The company worked with
the CAISO to survey its substations to identify which ones could
accommodate small generation plants that could be used in times
of very high demand. This is helping the CAISO to obtain proposals
form power generators to site these small plants.

The company has pledged
to protect its customers from the kind of price spikes seen
in San Diego this summer. The company will present a rate stabilization
plan in November, to take effect at the end of its temporary
rate freeze, to allow collection of unrecovered electricity
costs over time while also protecting its customers from price
spikes.